Appendix 5 Answers to Prepping for Exam Questions

Chapter 1

  1. c.

  2. a.

  3. a.

  4. b.

  5. c. The proper mix of stocks and bonds to hold for financing assets is a capital structure question.

  6. b. The current price of a share of stock is the present value of expected future cash flows.

  7. c.

  8. b. Sole proprietorships have unlimited liability.

  9. c.

  10. d.

Chapter 2

  1. b.

  2. c.

  3. d.

  4. d. The income statement begins with revenue and subtracts various operating expenses until arriving at earnings before interest and taxes (EBIT). Next, interest expense is subtracted to find the taxable income for the period. Then the appropriate taxes are calculated and subtracted. We finally arrive at the net income, the so-called bottom line of the income statement.

  5. c. The finance manager uses ...

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